(CP)
Monday, March 24, 2008

MONTREAL—Fairfax Financial Holdings Ltd. is buying into the financial restructuring of AbitibiBowater Inc., agreeing to purchase $350 million (U.S.) worth of convertible debentures.
The involvement of the Toronto-headquartered insurance company, widely respected as an astute investor, prodded AbitibiBowater shares up as much as 27 percent this morning on the Toronto Stock Exchange.

The transaction, part of AbitibiBowater’s $1.4-billion (U.S.) refinancing effort, “is expected to address upcoming debt maturities and general liquidity needs” of its Montreal-based Abitibi-Consolidated Inc. subsidiary, the North American paper and forest products maker said today.
Fairfax is buying the five-year debentures with an eight percent interest rate. This interest can be paid in the form of additional debentures at a 10 percent rate.
The debt issue is convertible into AbitibiBowater common shares at $10 (U.S.) per share, and Fairfax will appoint two directors to the AbitibiBowater board.
If the debentures were fully converted, Fairfax would hold 35 million new shares of AbitibiBowater, which currently has 52.6 million shares outstanding.
The transaction is subject to various conditions, including success in the rest of the company’s $1.4-billion financial restructuring.
AbitibiBowater stock leaped as high as $12.35 (Cdn.) early today on the TSX, trading later in the morning at $11.90—up by $2.15, or 22 percent, from Thursday’s close.
The shares had risen 32 percent Thursday on hopes the refinancing would be finalized this week.
The stock, worth $35.85 (Cdn.) shortly after being listed last October following the merger of Abitibi-Consolidated and Bowater, has since traded as low as $4.57 on March 13.
The company—facing liquidity problems that threaten the solvency of the Abitibi-Consolidated subsidiary—confronts a March 31 deadline, but announced Wednesday that nearly two-thirds of investors holding $496 million (U.S.) of debt had endorsed a sweetened refinancing plan.
This would provide them with cash and unsecured notes paying 15.5 percent interest. The rest of the restructuring plan involves secured bank debt and $161 million (U.S.) to be realized on the sale of an Arizona newsprint plant.
Although AbitibiBowater has announced price increases for newsprint and other grades of paper, the strong Canadian dollar has undermined its profitability.